About this fund

Robeco High Yield Bonds invests in corporate bonds with a sub-investment grade rating, issued primarily by issuers from developed markets (Europe/US). The selection of these bonds is mainly based on fundamental analysis. The portfolio is broadly diversified, with a structural bias to the higher rated part in high yield. Performance drivers are the top-down beta positioning as well as bottom-up issuer selection. This share class hedges the duration (interest-rate sensitivity) of the portfolio to nearly zero.

The value of the investments may fluctuate. Past performance is no guarantee of future results.Annualized (for periods longer than one year).Cumulized (total amount of return).Performances are gross of fees and based on closing values. In reality, costs (such as management fees and other costs) are charged. These have a negative effect on the returns shown.Performances are net of fees and based on transaction prices.

Fund

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The value of the investments may fluctuate. Past performance is no guarantee of future results.Annualized (for periods longer than one year).Cumulized (total amount of return).Performances are gross of fees and based on closing values. In reality, costs (such as management fees and other costs) are charged. These have a negative effect on the returns shown.Performances are net of fees and based on transaction prices.

Performance explanation

Based on transaction prices, the fund's return was 2.00%. The fund outperformed its benchmark on a gross performance basis. On a relative basis we added 23 basis points. Our regional tilt, being overweight Euro high yield and underweight US high yield added 5 bps for the month. From a rating perspective, the allocation effect was flat for the month on a risk adjusted basis, hence issuer selection added most of the relative performance. Issuer selection in basic industry detracted 3 bps, while within energy, consumer cyclicals and capital goods we added 7 bps. From an issuer perspective, the main detractors for the month, although small, were: our overweight in Belfius Bank and our overweights in Tereos and Standard Industries. The main contributors in April were our overweights in automotive parts companies Adient and Grupo-Antolin Irausa, which add 9 bps in total. Weakness in Frontier and Sprint helped our relative performance by around 7 bps. Finally our overweight in French waste company Paprec Holding added 3 bps. The company reported better-than-expected Q1 results and the bonds rallied by 10 points.

Market development

The global high yield market posted another positive total return in April. The 1.4% return was entirely on the back of spread tightening, as underlying government bonds finished the month slightly higher. Spreads tightened almost 40 bps to a level of 362 bps. In April we witnessed some setback on macro headlines, with weaker data coming from Europe and the US. The 3.2% GDP growth in the US looked promising but the underlying components such as imports and consumer demand showed weakness. Later in the month, sentiment was helped by the Fed striking a tone that was less dovish than expected. Earnings season held up pretty well with numbers that on balance were better-than-expected. Primary issuance continued to be strong. An interesting observation when looking at both markets is that primary issuance in the US is similar to last year's, but European primary is down by 35%. Fund flows continue to make their way into the asset class, taking considerable market share from the leveraged loan market. Global high yield bond spreads and yields tightened, the spread level is 362 bps with an average yield of 5.58%.

Currency policy

Derivative policy

Robeco High Yield Bonds make use of derivatives for hedging purposes as well as for investment purposes. These derivatives are very liquid.

Dividend policy

The fund does not distribute dividend. The income earned by the fund is reflected in its share price. The fund's entire result is thus reflected in its share price development.

ESG Integration policy

The prime goal of integrating ESG factors in our analysis is to strengthen our ability to assess the downside risk of our credit investments. Our analysts include RobecoSAM sustainability data and use external sources to make an ESG assessment as a part of the fundamental analysis.

Investment policy

Robeco High Yield Bonds invests in corporate bonds with a sub-investment grade rating, issued primarily by US and European issuers. The portfolio is broadly diversified across circa 250 issuers, with a structural bias to the higher rated part in high yield (BB/B). Performance drivers are the top-down beta positioning as well as bottom-up issuer selection. The fund aims to outperform its index Barclays US Corporate High Yield & Pan European High Yield ex Financials 2.5% Issuer Cap. The index excludes high yield financials based on relatively high systematic risk, and applies an issuer cap to avoid concentration risk. The investment philosophy is based on managing a solid diversified portfolio with a long term view. Top-down beta positioning is based on the outcome of our credit quarterly outlook meeting, in which the team is discussing the fundamental market outlook, valuation of bond markets and market technicals. Bottom-up issuer research is executed by our credit analysts, who execute the fundamental analysis. The analysts research reports are being discussed in approx. 500 credit committees per year. In addition, a proprietary quant issuer selection model is used as an independent performance driver. The portfolio managers are responsible for the portfolio construction. A proprietary developed risk management approach avoids high risk concentration in the portfolio. Holdings in equities can only appear in the portfolio as a result of corporate actions and/or debt restructuring. It is not the intention of the portfolio manager to use options or swaptions. As the investment process is well-structured and proven over time, it contributes to repeatable performance delivery. The Robeco High Yield fund is managed by our credit team which consists of eight portfolio managers and thirteen credit analysts. Within the team, Sander Bus and Roeland Moraal are responsible for high yield. Sander has been involved in the fund since inception in 1998, Roeland joined in 2003. The portfolio managers are responsible for the construction and management of the credit portfolios, whereas the analysts cover the team's fundamental research. This share class protects investors against interest rate movements. The fund management implements this strategy by adding an overlay of highly liquid instruments to the existing base portfolio.

Expectation of fund manager

Markets recovered almost all of the widening in 18Q4. Although mean reversion of spreads is not uncommon to high yield, we feel that the current correction has the classic pattern of a bear market rally. The very strong rebound that started in January is in our view not supported by fundamentals, other than that the Federal Reserve indeed did change its tone and is indicating a much more dovish outlook on monetary conditions now. We remain concerned about corporate leverage and too much risk appetite. Corporate earnings were mixed at best in the first quarter, economic indicators are volatile in both the US and Europe, GDP growth in the largest European countries is disappointingly close to zero, Brexit remains unresolved. Valuations in some parts of the market felt attractive at the beginning of the year, but this reversed rapidly and we are close to October 2018 tights. This holds for both US & European high yield. Overall, our view is cautious as the cycle is late and valuations are tight. We keep our beta below one, we continue to favor high quality high yield and prefer Europe over the US.

Sander Bus, Roeland Moraal

Sander Bus, Roeland Moraal

Mr. Bus is Head of the Credit team and manages our high yield portfolios. Prior to joining Robeco in 1998, Mr. Bus worked for Rabobank as a fixed income analyst for two years. Mr. Bus holds a Master's degree in Financial Economics from Erasmus University, Rotterdam. He became a CFA charter holder in 2003 and is registered with the Dutch Securities Institute. Mr. Bus has been active in the industry since 1996. Mr. Roeland Moraal, Vice President, CEFA, Portfolio Manager. Roeland is a Senior Portfolio Manager High Yield within Robeco's Credit team since January 2004. Before assuming this role, he was portfolio manager in our Rates team for two years and worked as an analyst with the Institute for Research and Investment Services for three years. Roeland started his career in the investment industry in 1997 at Robeco. He holds a Master's degree in applied mathematics from the University of Twente and a Master's degree in Law from Erasmus University, Rotterdam. Roeland became a CEFA charter holder in 2000 and he is registered with the Dutch Securities Institute.

Team

The Robeco High Yield fund is managed within Robeco’s credit team, which consists of nine portfolio managers and twenty-three credit analysts. The portfolio managers are responsible for the construction and management of the credit portfolios, whereas the analysts cover the team’s fundamental research. Our analysts have long term experience in their respective sectors which they cover globally. Each analyst covers both investment grade and high yield, providing them an information advantage and benefiting from inefficiencies that traditionally exist between the two segmented markets. Furthermore, the credit team is supported by three dedicated quantitative researchers and four fixed income traders. On average, the members of the credit team have an experience in the asset management industry of seventeen years, of which eight years with Robeco.

Cost of this fund

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Fiscal product treatment

The fund is established in Luxembourg and is subject to the Luxembourg tax laws and regulations. The fund is not liable to pay any corporation, income, dividend or capital gains tax in Luxembourg. The fund is subject to an annual subscription tax ('tax d'abonnement') in Luxembourg, which amounts to 0.01% of the net asset value of the fund. This tax is included in the net asset value of the fund. The fund can in principle use the Luxembourg treaty network to partially recover any withholding tax on its income.

Fiscal treatment of investor

Investors who are not subject to (exempt from) Dutch corporate-income tax (e.g. pension funds) are not taxed on the achieved result. Investors who are subject to Dutch corporate-income tax can be taxed for the result achieved on their investment in the fund. Dutch bodies that are subject to corporate-income tax are obligated to declare interest and dividend income, as well as capital gains in their tax return. Investors residing outside the Netherlands are subject to their respective national tax regime applying to foreign investment funds. We advise individual investors to consult their financial or tax adviser about the tax consequences of an investment in this fund in their specific circumstances before deciding to invest in the fund.

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